African leaders have endorsed a plan to establish a home-grown credit rating agency in a bid to promote financial independence.
Meeting in Addis Ababa for the 38th African Union Summit, the leaders said the creation of the African Credit Rating Agency (AfCRA) would help counter the bias in existing global credit ratings that has long hampered the continent's economic growth.
According to the Africa Peer Review Mechanism and the United Nations Development Programme (UNDP), Africa is missing out on $75 billion in opportunities because of biased credit ratings.
Kenya's President William Ruto, the champion of AU reforms, lamented that despite Africa's natural wealth, fertile land, large diaspora remittances and vast carbon sinks, credit agencies have downgraded 94 percent of African countries in the last decade, granting investment grade status to only two.
The potential impact of the AfCRA would be profound, he said, citing research showing that a one-level improvement in Africa's average credit rating would unlock $15.5 billion in additional funding.
“This alone would outstrip Official Development Assistance by 12 percent and meet 80 percent of Africa’s infrastructure needs. The opportunity is within our grasp, and we must seize it,” said President Ruto at the High-Level Presidential Dialogue on the Establishment of the Africa Credit Rating Agency.
Other speakers included Presidents Abdelmadjid Tebboune of Algeria, who is also chairperson of the Africa Peer Review Forum of Heads of State and Government, Taye Selassie of Ethiopia and Hakainde Hichilema of Zambia, as well as the Deputy Chairperson of the African Union Commission, Monique Nsanzabaganwa.
As Africa pursues economic integration and resilience, AfCRA is an important step in reaffirming the continent's position in global financial governance, the leaders said.
“We must be bold and call this for what it is: A financial straitjacket imposed on Africa. A system that punishes our economies while rewarding others, even when the fundamentals are comparable if not better,” Dr Ruto added.
Africa, he said, will no longer accept being misjudged by metrics that overlook its reality.
“An African credit rating agency is not just an alternative, it is an imperative. This agency must be globally credible and backed by rigorous, credible data and driven by high reporting standards from our own governments. But more importantly, it must reflect Africa’s reality correctly,” Dr Ruto said.
The leaders said AfCRA’s objective is “not to compete with or replace” the international credit rating agencies but rather to complement them by offering an alternative perspective.
“It will focus on filling gaps in data and analysis, addressing regional nuances, and promoting African financial integration. This will allow for a diversified view of creditworthiness and fosters collaboration for mutual benefit,” they said.
Currently under development, the agency is due to be officially launched in June as part of the AU's wider programme of financial integration and independence.
The aim of establishing an African rating agency is to "provide fair, transparent and development-focussed credit ratings that reflect the realities and potential of African economies".
Its primary aim is to "enhance transparency, reduce reliance on the three international rating agencies and address the specific needs of African countries, institutions and contexts".
Designed to address concerns about bias, inaccuracies and high costs associated with international credit rating agencies in assessing African countries, the agency, the leaders said, “will provide an opportunity for the continent to have a credit rating system that reflects Africa’s unique socioeconomic realities and fosters a fairer representation of its creditworthiness.”
Unlike traditional rating agencies such as Moody's, Fitch, or Standard and Poor's, AfCRA will focus exclusively on African economies, incorporating data and socio-economic indicators specific to each region.
“The time has come to rewrite our history, reclaim our narrative, and charge the African Renaissance forward. Our urgent calling is to fulfil our duty to Africa’s people and ensure that our continent takes its rightful place in shaping global progress in its full capacity and potential,” President Ruto said.
Global credit rating agencies have not only dealt Africa a bad hand, “they have also deliberately failed Africa,” he said.
“They rely on flawed models, outdated assumptions, and systemic biases, painting an unfair picture of our economies and leading to distorted ratings, exaggerated risks, and unjustifiably high borrowing costs. These prejudiced assessments come at an enormous cost, not just to Africa but to the world. They deter investment, distort global trade, and derail progress towards the Sustainable Development Goals. By misjudging Africa, these agencies deny opportunity to investors and economies and deprive nations of prosperity.”
